Davis met yesterday in London with investors who rank outside the 10 biggest holders, said Jane Coffey, head of equities at Royal London Asset Management Ltd., which was represented at the discussion. The firm holds about 0.4 percent of Xstrata’s stock, data compiled by Bloomberg shows, worth 150 million pounds ($240 million). Xstrata declined to comment.
Xstrata is using its scheduled post-earnings briefings with investors to also explain the merits of its all-share “merger of equals” with 34 percent-shareholder Glencore. The Baar, Switzerland-based commodities trader has offered 2.8 of its shares for every one in Xstrata, a ratio that some analysts and investors have said is too low a price for the coal producer.
“They’ve got to convince us that actually the combined group is at least as good as the group we were holding before -- i.e. Xstrata,” Coffey said in a telephone interview today. “And they don’t seem to be winning that battle.”
While Davis said Feb. 7 that a majority of the shareholders he had spoken to before the transaction was announced backed the combination, Standard Life Investments Ltd. and Schroders Plc (SDR), who together hold 3.5 percent, have said the proposed exchange ratio undervalues Xstrata.
“Relative to our valuation analysis, the merger terms don’t necessarily recognize the stand-alone value of Xstrata from the perspective of a one-time payment,” said Jeff Largey, a mining analyst at Macquarie Group Ltd. in London. “But then again, the deal is being structured as a shared vehicle to create value for shareholders of the combined entity.”
After Glencore, the largest shareholders in Xstrata include Blackrock Inc. (BLK), Legal & General Investment Management, Standard Life Investments, State Street Global Advisors Inc., Norges Bank and Scottish Widows Investment Partnership, data compiled by Bloomberg show.
Blackrock, also a top-10 holder of Glencore stock, declined to comment. David Cumming, head of equities at Standard Life Investments and Richard Buxton, the head of U.K. equities at Schroders, couldn’t be reached for comment today. A spokeswoman for Vanguard Group Inc., which holds 1.2 percent of Xstrata according to Bloomberg data, declined to comment.
Copper, Nickel, Ships
The deal would create the world’s fourth-largest mining company, combining the largest supplier of coal burned by power stations with Glencore’s global trading network. It would be the third-largest copper producer and fourth-biggest nickel supplier, have about $209 billion in annual sales, operations and projects in 33 countries, with 101 mines, a fleet of more than 200 vessels and about 130,000 employees.
Glencore won’t be allowed to vote its holding in Xstrata on the merger, according to the U.K.’s takeover code, putting the final decision into the hands of the shareholders who control the rest of the company. That means 16.48 percent of Xstrata’s shareholders hold the power to block the deal.
“The challenge for management is to convince Xstrata shareholders that this deal is value-accretive for them,” Macquarie’s Largey said. “They will likely burn a lot of shoe leather meeting with investors as they push the case as to why a merged Glencore-Xstrata makes sense and will create shareholder value.”
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